Just Approved: Diligence secures complicated loan originally dismissed by bank

Published 6:23 pm, Friday, January 10, 2014

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Just Approved: Diligence secures complicated loan originally dismissed by bank

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Mortgage adviser: Mari Parsnick

Loan amount: $505,000

Rate: 4.625 percent

Loan type: Conventional 30-year fixed, no points

Backstory: The clients purchased their home in 1999, and had a 30-year fixed loan with an interest rate of 6.75 percent.

They wanted to refinance at a lower interest rate and began working with a major bank.

The property appraisal came in at a little more than $1 million, so they had plenty of equity to allow for a refinance. The problem was that the clients also had a sizable tax loss carryover resulting from the cost of extensive renovation to an investment property and the loss of rent during the renovation.

The bank denied their loan application after numerous requests for additional documentation related to the clients' complicated income tax returns.

The clients contacted Parsnick to see if she could turn the situation around. Working with the clients' tax professional, Parsnick prepared a detailed year-by-year analysis of the net operating losses to demonstrate that the losses represented sunk cost and that positive income had been restored after the renovation.

The loan was approved and the clients now have a guaranteed low interest rate for 30 years.

Why was the original bank not able to approve this loan request? The clients were only told that they were not qualified due to the tax losses. In all likelihood, two possible forces were at stake: inexperience and risk aversion.

The bank loan officer and underwriters may not have had the experience or inclination to deal with a complicated loan request. The other possibility is they were able to accurately calculate the clients' income situation, but chose not to make the loan because they feared that it would be rejected by the mortgage agencies Fannie Mae and Freddie Mac at the time of sale to one of those agencies.

Either way, this scenario illustrates the importance of working with loan officers and lending institutions that have the expertise to evaluate complex financing requests and the willingness to approve and close loans that are prudently and thoroughly evaluated.